Posts tagged ‘SNCF’

Government Agencies Run For Their Employee's Benefit

About 20 years ago I did a rail transit study for McKinsey & Company with a number of European state rail companies, like the SNCF in France.   With my American expectations, I was shocked to see how overstaffed these companies were.  At the time, the SNCF had more freight car maintenance personnel than they had freight cars.  This meant that they could assign a dedicated maintenance person to every car and still get rid of some people.

Later in my consulting career, I worked for Pemex in Mexico, where the over-staffing was even more incredible.  I realized that in countries like France and Mexico, state-run corporations were first and foremost employment vehicles run for the benefit of employees, and, as  distant second, value-delivery vehicles and productive enterprises.

Over the last 20 years, I have seen more and more of this approach to public agencies coming to the US.  If nothing else, the whole Wisconsin brouhaha hopefully opened the eyes of many Americans to the fact that public officials and heads of agencies feel a lot more loyalty to their employees than they do to taxpayers.

I see this all the time in my business, which is private operation of certain state-run activities (e.g. parks and recreation).  I constantly find myself in the midst of arguments that make no sense against privatization.   I finally realized that the reason for this is that they were reluctant to voice the real reason for opposition -- that I would get the job done paying people less money.  This is totally true -- I actually hire more people to staff the parks than the government does, but I don't pay folks $65,000 a year plus benefits and a pension to clean the bathrooms, and I don't pay them when the park is closed and there is not work to do.  I finally had one person in California State Parks be honest with me -- she said that the employees position was that they would rather see the parks close than run without government workers.

Of course, if this argument was made clear in public, that the reason for rising taxes and closing parks was to support pay and benefits of government employees, there might be a fight.  So the true facts need to be buried.  Like in this example from the Portland transit system, via the anti-planner.

In 2003, TriMet persuaded the Oregon legislature to allow it to increase the tax by 0.01 percent per year for ten years, starting in 2005. In 2009, TriMet went back and convinced the legislature to allow it to continue increasing the tax by 0.01 percent per year for another 10 years. Thus, the tax now stands at $69.18 per $10,000 in payroll, and will rise to $82.18 per $10,000 in 2025.

At the time, TriMet promised that all of this tax increase would be dedicated to increasing service, and as of 2010, TriMet CFO Beth deHamel claims this is being done. But according to John Charles of the Cascade Policy Institute, that’s not what is happening.

Poring over TriMet budgets and records, Charles found that, from 2004 (before the tax was first increased) and 2010, total payroll tax collections grew by 34 percent, more than a third of which was due to the tax increase. Thanks to fare increases, fares also grew by 68 percent, so overall operating income grew by about 50 percent, of which about 7 percent (almost $20 million) was due to the increased payroll tax.

So service must have grown by about 7 percent, right? Wrong. Due to service cuts made last September, says Charles, TriMet is now providing about 14 percent fewer vehicle miles and 12 percent fewer vehicle hours of transit service than it provided in 2004 (comparing December 2004 with December 2010). TriMet blamed the service cuts on the economy, but its 50 percent increase in revenues belie that explanation.

By 2030, according to TriMet’s financial forecast (not available on line), the agency will have collected $1.63 billion more payroll taxes thanks to the tax increase. Yet the agency itself projects that hours and miles of service in 2030 will be slightly less than in 2004.

Where did all the money go if not into service increases? Charles says some of it went into employee benefits. TriMet has the highest ratio of employee benefits to payroll of any transit agency. At latest report, it actually spends about 50 percent more on benefits than on pay, and is the only major transit agency in the country to spend more on benefits than pay. This doesn’t count the unfunded health care liabilities; by 2030, TriMet health care benefits alone are projected to be more than its payroll.

Sideways Protectionism

Apparently, legislators in California can't get away with just passing a law that says something like "no damn foreigners can build trains for us."  So they repackage their protectionism by finding a way to disguise it, in this case with a truly screwball piece of fiddling-while-Rome-burns legislation:

A bill authored by Assemblymember Bob Blumenfield (D "“ San Fernando Valley) requiring companies seeking contracts to build California's High Speed Rail system to disclose their involvement in deportations to concentration camps during World War II gained final approval from the state legislature today. AB 619, the Holocaust Survivor Responsibility Act, passed the Assembly on a vote of 50 "“ 7 and was sent to the governor, who will have until September 30 to act on it.AB 619 would require companies seeking to be awarded high speed rail contracts to publicly disclose whether they had a direct role in transporting persons to concentration camps, and provide a description of any remedial action or restitution they have made to survivors, or families of victims. The bill requires the High Speed Rail Authority to include a company's disclosure as part of the contract award process.

Apparently they have in mind specifically the SNCF, the French national railroad.  Its loony enough to blame current corporate management and ownership for something the entity did three generations ago, but the supposed crimes of the SNCF occurred when France was occupied by the Nazis.   Its like criticizing the actions of a hostage.  And even if there were some willing collaborationists, they almost certainly were punished by the French after liberation, and besides the US Army Air Force did its level best to bomb the SNCF's infrastructure back into the stone age, so I am certainly willing to call it quits.

Juxtaposition

This post and this post came up back to back in my feed reader this morning.  The first explored per capita GDP between Greece and Germany, and wonders why the published numbers can be so close when visual evidence is that the average Greek is far less prosperous than the average German.  Brian Caplan explains the largest difference between Greece and Germany in terms of public sector productivity, with 10% of the workforce in Germany working for the state while a third of Greeks do so.

Knowing the Germans, it's easy to believe that its government employees accomplish as much as the Greeks' despite their smaller population share.  This implies that 25% of the Greek labor force is, contrary to official stats, producing nothing.

So using Sumner's other numbers - and assuming output is roughly proportional to labor force - per-capita GDP is more than 50% higher in Germany than Greece.  First-hand observation tells me that's still an understatement, but it still closes a big chunk of the gap between official stats and reality.  How's that for a mental image?

UPDATE: The NY Times apparently overstated the 1/3 figure, see here.

Right after reading that piece, I read this from Jim O'Brien via Tad DeHaven:

Back in 1990, Halstein Stralberg coined the term "automation refugees" to describe Postal Service mail processing employees who were assigned to manual operations when automation eliminated the work they had been doing. Since the Postal Service couldn't lay off these employees, they had to be given something to do, and manual processing seemed to have an inexhaustible capacity to absorb employees by the simple expedient of reducing its productivity. The result was a sharp decline in mail processing productivity and a sharp increase in mail processing costs for Periodicals class. Periodicals class cost coverage has declined steadily since that time.

O'Brien then tells of visiting seventeen mail processing facilities as part of a Joint Mail Processing Task Force in 1998. During those visits he noted that the periodical sorting machines always happened to be down even though the machines were supposed to be operating seventeen hours a day. Although the machines weren't working, manual operations were always up and running.

A decade later, O'Brien points out that the situation apparently hasn't changed:

More Periodicals mail is manually processed than ever, and manual productivity continues to decline. Periodicals Class now only covers 75% of its costs. How can this dismal pattern of declining productivity and rising costs continue more than two decades after it was first identified, especially when the Postal Service has invested millions of dollars in flats automation equipment?

Years ago, I briefly consulted to the SNCF, the French national railroad.  I say briefly, because thought they technically asked us to benchmark them against US firms, its clear they did not really want to hear the results.  The one figure that sticks in my mind is that they had something like 100,000 freight cars, but 125,000 freight car maintenance employees.  I remember observing to a highly unamused SNCF executive that they could assign one maintenance worker to his very own freight car and still lay off 20% of the staff.  And apparently France is an order of magnitude better on stuff like this than Greece.

We Make Money the Old Fashioned Way -- Through Massive Public Subsidies

During and after the Obama proposal for lots more government spending on long-distance rail lines no one will ride, there was a lot of discussion about how European railroads make money with high speed lines.  This sounded like BS to me, from my experience.  Years ago I consulted briefly with the SNCF, the state railroad of France.  Just as one example, we found they had something like 100,000 freight cars and 125,000 freight car mechanics.  I tongue-in-cheek suggested they could assign each guy his own car to ride with full time and fix if necessary and still cut staff by 20%.

Anyway, it turns out the profitability claim is BS.  The Antiplanner links to this study by the Amtrak inspector general.   Here is the key chart, with the green the "reported" profits.  But it turns out they book subsidies as revenue.  The subsidies (including indirect subsidies like taking railroad pensions into the national system and off the railroad's books) are in red.

railroad-losses

Postscript: I have always been amazed that greens get all misty-eyed at European rail.  Sure, its cool to ride a fast train, but the cost of having an extensive passenger rail system is that most of Europe's freight pounds along highways, rather than via rail.  In the US, the mix is opposite, with few passengers on trains but much more of our freight moving by rail.  I would have thought that preferentially moving freight over rail rather than passengers was a much greener approach.

European vs. American Rail

It seems that one of those cycles the US always castigates itself about is a perception that the Europeans have a better rail system than we do and that we should somehow emulate their system.  Which is why we still have federal subsidies of a half-assed Amtrak system and high-speed rail proposals are circulated breathlessly from time to time. 

By the way, I have been a consultant to French railroad SNCF and I gaurantee we do not want to emulate the European rail system.  First and foremost, the railroads are huge employment boondoggles.  I remember that the SNCF when I was there had something like 100,000 freight cars but 125,000 freight car maintenance people.  I suggested the railroad could assign one individual full time to his own car and still lay off 20% of the work force. 

The main reason we don't have inter-city passenger rail is a simple one that anyone spending 5 minutes with the numbers can understand -- there are distance break points where air travel is more economic than rail, and most US inter-city transit falls into the larger distance ranges.

Anyway, the anti-planner shares a bit of information that is seldom mentioned in the rail discussion that makes the US rail system look a lot more desireable:

Europe has decided to run its rail system primarily for passengers,
while America's system is run mainly for freight. Europe's rail system
has about 6 percent of the passenger travel market, while autos have
about 78 percent. Meanwhile, 75 percent of European freight goes by
highway. Here in the U.S., highway's share of freight travel is only 29
percent, while the auto's share of passenger travel is about 82
percent. So trains get 4 percent of potential auto users in Europe out
of their cars, but leave almost three times as much freight on the
highway.

In fact, the freight rail system is so efficient that to some extent we've obviated the need for the Panama Canal.  Many Asian container ships bound for Europe actually make port in Seattle or Vancouver, offload their containers onto trains which shoot across the country to New York or another eastern port where they are reloaded on ships for the trip to Europe.

By the way, in the same article, don't miss the hilarious proposal in Minnesota to spend taxpayer money for a high speed rail line from the Twin Cities to ... Duluth.  Yeah, that's the ticket.  New York to Boston barely makes it financially, but St. Paul to Duluth is going to be a winner.

More Subsidy Insanity

Over a decade ago, the German government adopted the goal of reducing the country's CO2 emissions back to 1990 levels as part of the Kyoto process.  That's why its incredible to me that after spending billions on various goofy and questionable conservation and alternative energy programs, someone has finally thought to maybe stop massively subsidizing coal production.

For decades, German lawmakers have propped up the industry,
unwilling to risk massive layoffs and reluctant to eliminate a reliable
energy source as gas and oil supplies become scarcer.

But after spending more than $200 billion in subsidies since the
1960s, the federal government this year decided that the practice had
become unaffordable. The 2018 sunset for the hard-coal industry was set.

Economists and free-market lawmakers have long decried the subsidies
as handouts to the politically influential coal industry and powerful
trade unions. This year, for instance, Deutsche Steinkohle AG, the
owner of the remaining eight mines, will receive more in government
subsidies ($3.3 billion) than it will from selling coal ($2.9 billion).

With just 32,000 miners left, that's the equivalent of more than $100,000 in annual subsidies per worker.

I don't know what is more incredible -- $100,000 per worker or the fact that subsidies actually are larger than revenue from coal sales.  In effect, the government is subsidizing more than half of coal's production costs.

Sometimes we in the US forget just how insane the economy in Europe can be.  I remember doing a consulting project for the French national railroad, the SNCF.   It turned out the SNCF, for it's 100,000 freight cars had ... 125,000 freight car maintenance workers.  The headcount number was so insane I had to check it three times to make sure it was right.  I commented at the time that they could assign one car repair worker full time to each freight car, and have him ride around with that car full time, and still cut staffing by 20%.